Acceptance of inequality rests on assumptions that 'free markets' make us all richer in the end. Growth figures tell it differently
As Nick Clegg fends off accusations of selling out and Labour leadership candidates set out their stall, debates about inequality show no sign of going away. But the moral arguments are rarely extended far enough, and virtually no politician challenges a basic, erroneous premise that inequality is a price worth paying for a more efficient market system that enriches us all
- The simplistic, free-market view of the Thatcher-Major era said equality of opportunity is all we need for a fair society. If no one had their market participation blocked, the result, however unfair it may look to some, should be accepted as fair. Today many people, both on the left and the right, recognise that this is not enough. We can accept the outcome of a competitive process as fair only when the participants have equality in basic capabilities; the fact that no one is allowed to have a head start does not make the race fair if some contestants have only one leg.
Children who do not have some minimum level of nutrition, healthcare, and education cannot grow into fully capable adults. The
Sure Start programme of the last Labour government and the coalition's pupil premium are based on recognition of this fact, although neither are of sufficient scale and depth to make a fundamental difference.
Unfortunately the debate more or less stops there. But, if we accept children should not be penalised for things beyond their control, shouldn't we accept the same for adults? Most people become unemployed through events such as a financial crisis. And yet, despite that, we insist on punishing the unemployed. A fairer solution would be to give them a second, third, or fourth chance through effective retraining and relocation programmes supported by an industrial policy geared towards generating high-productivity jobs. For some we already give second chances: the bankruptcy law offers business people protection from creditors and debt restructuring because we accept that businesses often fail due to factors outside their owner's control.
But even giving adult workers second chances does not take us far enough towards a fairer society. We have to question an assumption that has dominated economic thinking over the last three decades – namely, the belief that maximising market freedom is the best way to generate wealth.
From this assumption came the argument that even committed egalitarians should let markets rip, because that would give them the maximum wealth to redistribute. In Britain, the natural "progressive" conclusion was the New Labour strategy that you regulate the City as little as possible because that will maximise the wealth it generates, which means more money for equality-enhancing programmes like Sure Start.
Sadly that assumption has been proved wrong. After three decades of deregulation and tax cuts for the rich, growth has slowed down, rather than accelerated, in almost all countries. The world economy, which was growing at about 3% in per capita terms in the "bad old days" of widespread regulation and punitive taxation for the rich in the 1960s and 70s, has grown at about half that rate in the last three decades. In Britain, average annual per capita income growth rate was 2.4% in the 60s and the 70s, when the country was allegedly suffering from the "
British disease"; but it fell to 1.7% during 1990 to 2009, after it is supposed to have been cured of the disease thanks to Margaret Thatcher's heroic struggle in the 1980s.
At the heart of this slowdown lies the free-market policy package. In developing countries it has led to breakneck liberalisation of trade, so destroying swaths of "infant" industries. In both developing and developed countries, policies to reduce inflation to very low levels have choked demand and made business loans expensive. And in Britain and the US, financial deregulation has played a crucial role in reducing growth.
Unleashing finance has enormously increased the power of mobile shareholders in pursuit of short-term profits and high dividends. The surest way to deliver these is to minimise long-term investments, such as machinery and research and development. Shareholders have encouraged such behaviour by paying astronomical salaries to managers good at making such cuts, even though they weaken the growth prospect of companies in the long run. Those shareholders don't necessarily care about the long-term future of their companies: they can always sell their shares.
If we cannot assume free-market policies to be the best at generating wealth, the British debate on equality needs a total rethink. We have to debate what our macroeconomic, industrial, financial, or even executive pay policies should be, as their exact shapes significantly affect the scale of wealth that markets create. It cannot be blithely assumed that markets know how to maximise wealth – while all we have to worry about is how to redistribute it through taxes and benefits.
No comments:
Post a Comment